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Contents of the press release

The Census and Statistics Department today (June 20) released the international investment position (IIP) statistics for Hong Kong for the reference year of 2002.

IIP is a balance sheet showing the stock of external financial assets and liabilities of an economy at a particular time point. External financial assets consist of financial claims on non-residents and other financial assets where no debtor is involved (e.g. monetary gold). External financial liabilities refer to financial claims of non-residents on residents of the economy.

In compiling and presenting the IIP statistics, the standards prescribed in the Fifth Edition of the Balance of Payments Manual (BPM5) of the IMF are adopted.

IIP Statistics for 2002

Summary

At end-2002, Hong Kong's external financial assets and liabilities amounted to $8,024.6 billion and $5,378.6 billion respectively. After netting out the external financial liabilities from the external financial assets, Hong Kong stood as a net creditor, with net external financial assets amounting to $2,646.1 billion at end-2002, corresponding to 210% of GDP in that year.

The ratios of both Hong Kong's external financial assets and liabilities at end-2002 to GDP in that year remained substantial, at 637% and 427% respectively, reflecting that Hong Kong is a highly externally oriented economy with considerable cross-territory investment and also a major financial centre in the region with considerable cross-territory fund positions.

Most of the broad IIP components were in net asset positions at end-2002. The only exception was direct investment (DI), with a net liability position as the amount of DI made by non-residents in Hong Kong was greater than that made by Hong Kong residents abroad.

Compared with end-2001, the positive net IIP at end-2002 increased by $578.1 billion. This was mainly attributable to a surge in the net asset position of portfolio investment (PI) and a significant decline in the net liability position of direct investment (DI), which exceeded considerably the decreases in the net asset positions of other investment (OI) and financial derivatives (FD).

External Financial Assets

Hong Kong's external financial assets amounted to $8,024.6 billion at end-2002. OI was the largest component, accounting for 33.7% ($2,702.8 billion) of the total value at end-2002. Most of the OI assets were held by the banks in the form of inter-bank deposits and loans, reflecting the role of Hong Kong as an international banking centre in channelling funds to the rest of the world.

DI was the second largest component of Hong Kong's external financial assets, accounting for 29.6% ($2,375.8 billion) of the total value at end-2002. This reflected the position of Hong Kong as a major external direct investor to the rest of the world, notably in the mainland of China. It also partly reflected the common practice of setting up non-operating companies in offshore centres such as British Virgin Islands and Bermuda by Hong Kong enterprises for channelling DI funds back to Hong Kong or to other places.

At end-2002, 23.7% ($1,903.2 billion) of Hong Kong's external financial assets were in the form of PI abroad. Within this, 60.8% were debt securities while the other 39.2% were equity securities.

Reserve assets (RA) amounted to $872.8 billion or 10.9% of Hong Kong's total external financial assets at end-2002.

Financial derivatives (FD) assets held by residents were relatively insignificant, accounting for only 2.1% ($170.1 billion) of the total external financial assets at end-2002.

Comparing end-2002 with end-2001, total external financial assets declined by 3.9% or $326.0 billion. Within this total, DI and OI fell by 13.6% ($373.5 billion) and 9.7% ($292.0 billion) respectively during the year, more than offsetting the increases in FD, PI and RA, by 24.4% ($33.4 billion), 18.7% ($300.2 billion) and 0.7% ($5.9 billion) respectively.

External Financial Liabilities

Hong Kong's external financial liabilities amounted to $5,378.6 billion at end-2002. 49.2% ($2,643.9 billion) of this total were in the form of DI. Such a high proportion of DI liabilities reflected that Hong Kong had attracted many non-resident enterprises to set up direct investment companies here. It was also partly attributable to round-tripping of investment whereby the investment funds originated from Hong Kong were channelled through offshore centres back to Hong Kong.

OI liabilities also constituted a significant part of Hong Kong's external financial liabilities, accounting for 34.4% ($1,849.3 billion) of the total at end-2002. Similar to OI assets, most of the OI liabilities were related to deposits and loans of the banking sector.

At end-2002, PI liabilities accounted for 13.5% ($727.4 billion) of Hong Kong's total external financial liabilities. These PI liabilities were concentrated in equity securities, which took up a share of 85.0%.

FD liabilities owed by residents were also relatively insignificant, accounting for only 2.9% ($158.0 billion) of the total external financial liabilities at end-2002.

Comparing end-2002 with end-2001, total external financial liabilities fell by 14.4% or $904.1 billion. Within this total, PI, DI and OI decreased by 20.3% ($185.1 billion), 19.1% ($625.8 billion) and 7.8% ($157.2 billion) respectively, more than offsetting the increase in FD, by 68.0% ($64.0 billion).

Relationship between BoP and IIP

While IIP measures the stock of external financial assets and liabilities of an economy at the end of a reference period, the BoP financial account measures transactions in these assets and liabilities which have taken place during the period.

Transactions in assets and liabilities will affect the stock of the respective assets and liabilities. In addition, price changes and exchange rate variations as well as other adjustments will also affect the value of the stock, when expressed in the local currency of the economy.

Commentary

A Government Secretariat spokesman noted that Hong Kong's international investment position remained sound, with substantial net external financial assets at end-2002, equivalent to 210% of GDP in that year. This compared favourably with the latest international investment positions of a number of advanced economies, namely the United States, the United Kingdom, Canada and Australia, which were all in net liability positions. Hong Kong's net external financial assets were also much larger than those of Japan, Singapore and Germany when expressed as a ratio of GDP.

The spokesman further noted that both external financial assets and liabilities fell during 2002, amidst the lacklustre global economic climate. But with assets registering a lesser decline than liabilities, net external financial assets surged by 28.0% during 2002, having already leaped by 19.6% during 2001.

Further information

Table 1 (text version of table 1) gives the IIP by broad component. Table 2 (text version of table 2) gives the IIP by standard component. For enquiries on the IIP statistics, please call the Balance of Payments Section of the Census and Statistics Department (Tel.: 2116 8660).

The IIP statistics for the reference year of 2002 are only preliminary. The figures are subject to revision upon the availability of more data.

More detailed information relating to IIP will be published in the report "Balance of Payments Statistics of Hong Kong, First Quarter 2003" to be released on 26 June 2003.

The price of the publication is $27 per copy. It can be purchased in person from (i) Government Publications Centre, Ground Floor, Low Block, Queensway Government Offices, 66 Queensway, Hong Kong (Tel.: 2537 1910); or (ii) Publications Unit of the Census and Statistics Department, 19th Floor, Wanchai Tower, 12 Harbour Road, Wan Chai, Hong Kong (Tel.: 2582 3025).

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End/Friday, June 20, 2003

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